Latest / The Financial Exchange Show / Markets Defy Chaos, Oil Risks Grow, and AI Raises Bigger Questions

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Markets Defy Chaos, Oil Risks Grow, and AI Raises Bigger Questions · The Financial Exchange Show

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  Speaker 1: a donation today. This is the Financial Exchange with Chuck
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  Speaker 1: Zada and Mike Armstrong.
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  Speaker 2: Chuck, Mike and Tucker with you as we kick things
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  Speaker 2: off here, and we'll touch on comings and goings in
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  Speaker 2: the Middle East what's happening there.
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  Speaker 3: But I want to start just with kind of a
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  Speaker 3: more a broader look at.
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  Speaker 2: What we are seeing in markets that was spurred by
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  Speaker 2: this piece from the New York Times titled markets have
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  Speaker 2: faced a year of chaos and still have done awfully well,
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  Speaker 2: which is entirely true. And this is the thing that
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  Speaker 2: I come back to on a lot of this, which is, look,
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  Speaker 2: just because you're nervous about something or just because you're
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  Speaker 2: feeling uncertain about it, doesn't mean that that thing is
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  Speaker 2: definitively going to make markets go down. And we've had
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  Speaker 2: a number of these different things over the last year
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  Speaker 2: that we have you know, mentioned concerns about whether it
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  Speaker 2: be tariffs a year ago, whether it be AI related
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  Speaker 2: job loss, whether it be private credit, whether it be.
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  Speaker 3: Middle East conflict.
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  Speaker 2: And it's not to say that eventually you won't get
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  Speaker 2: to like a straw that breaks the camel's back. But
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  Speaker 2: if you look at the last twelve months here and
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  Speaker 2: again I'm just looking, you know, twelve months now, the
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  Speaker 2: SB five hundred during that time. And granted this is
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  Speaker 2: coming from you know, basically the bottom last year, so
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  Speaker 2: I know that this is skewed somewhat. But S and
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  Speaker 2: B during that time up thirty six percent. Now, Jones
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  Speaker 2: up twenty six, NASDAC up forty eight, Russell two thousand,
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  Speaker 2: up forty eight, International in disease, the MSCI Emerging Markets
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  Speaker 2: Index up fifty three, MSCI EFA up thirty seven, MSCI
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  Speaker 2: Japan up forty four, MSCI Europe up thirty four. So again,
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  Speaker 2: I know that some of this is coming from, you know,
• 3:01
  Speaker 2: the Liberation Day lows. But even if you wanted to
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  Speaker 2: look at hey last three years, which takes us back
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  Speaker 2: to concerns about Silicon Valley Bank and stuff like that,
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  Speaker 2: you've got all major US markets up anywhere from forty
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  Speaker 2: two to ninety percent, and major international indices that I
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  Speaker 2: mentioned up anywhere from forty two to sixty percent.
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  Speaker 4: Yeah, the last twelve months is an interesting time in
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  Speaker 4: question too, because April ninth is literally the day that
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  Speaker 4: the President announced he was pivoting away from his Liberation
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  Speaker 4: Day tariff. So it was Liberation Day was April second.
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  Speaker 4: It took him a week before bond markets freaked out
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  Speaker 4: and he had to pivot. And and I think Jugge
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  Speaker 4: it speaks to it speaks to atrusum that we've all
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  Speaker 4: experienced in markets for multiple decades, which is there can
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  Speaker 4: be a lot of geopolitical tension and there's always those
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  Speaker 4: potential problems on the horizon, but oftentimes they come and
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  Speaker 4: go without disturbing markets.
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  Speaker 2: Now, if you want to look at the interesting thing
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  Speaker 2: about this year, for all of the you know, hype
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  Speaker 2: of hey, you know, GDP growth is gonna be through
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  Speaker 2: the roof this year, and all of the fear of hey,
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  Speaker 2: the Middle East is gonna, you know, make markets collapse,
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  Speaker 2: to this point, basically nothing's happened. And this is the
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  Speaker 2: this is the wild thing in markets this year. The
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  Speaker 2: S and P five hundred down about one percent, The
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  Speaker 2: Dow Jones is down half a percent now as that
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  Speaker 2: Composites down three, The Russell two thousand's up five. If
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  Speaker 2: you if you told people, hey, after the first three
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  Speaker 2: and a third months of the year, your indices on
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  Speaker 2: average would be down like one percent, they'd be like, oh, so,
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  Speaker 2: you know, not a great start, but pretty boring, you
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  Speaker 2: know year, so far, right.
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  Speaker 4: Chuck, I'll go further than that, not only are they
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  Speaker 4: only down one percent, they weren't all that volatile given
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  Speaker 4: everything going on. At worst, they were down seven.
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  Speaker 2: The President said it himself, he said, he said, I'm
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  Speaker 2: kind of surprised that things weren't worse than mark. He's like,
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  Speaker 2: I thought things might get a little bit worse than
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  Speaker 2: they did. So I think that when you look at
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  Speaker 2: you know, where we stand right now markets, and remember,
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  Speaker 2: ultimately markets are fueled by equity. Markets are fueled by
• 5:15
  Speaker 2: the earnings generated by the companies within them, and in
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  Speaker 2: the aggregate, the earnings have been good, mostly driven by tech.
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  Speaker 2: You know, that's that's where we've seen the biggest earnings growth.
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  Speaker 2: But overall, that is what is effectively pushing this market forward.
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  Speaker 2: And so I think that when we look at it,
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  Speaker 2: and you know, look at again kind of where that
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  Speaker 2: earnings growth is coming from. So taking a look at
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  Speaker 2: you know, through Q four the year over year earnings growth,
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  Speaker 2: tech is the biggest one. And this is a data
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  Speaker 2: from fact Set. On March twenty seventh, Tech earnings were
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  Speaker 2: up thirty three percent and change through Q four, So
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  Speaker 2: basically like full year twenty four to full year twenty five,
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  Speaker 2: up thirty three percent, industrials up twenty three the SMP
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  Speaker 2: earnings up thirteen point nine percent. So again like that's
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  Speaker 2: the driver's seat, like those those companies there, and really
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  Speaker 2: even within tech it's the AI tech companies. You then
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  Speaker 2: have you know, three other sectors with good earnings growth rates.
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  Speaker 2: I'll qualify the long term average for the S and
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  Speaker 2: P five hundred earnings growth is around seven to eight percent.
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  Speaker 2: So anything you know in that ballpark or higher, I'll say,
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  Speaker 2: is good. Communication, services, materials, and financials all came in
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  Speaker 2: between eight and thirteen percent.
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  Speaker 3: It's good. Yeah.
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  Speaker 2: You then do have the six sectors that have lagged
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  Speaker 2: with you know, utilities, consumer staples, real estate, energy, consumer discretionay,
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  Speaker 2: and healthcare earnings grew anywhere from half a percent to
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  Speaker 2: three point nine percent last year, which is not great.
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  Speaker 2: You know it's and specifically when you look at consumer
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  Speaker 2: discretionary coming in with eight percent growth, that's something where
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  Speaker 2: you say, okay, like there's a problem because this is
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  Speaker 2: not being a consumer you know driven market. It's not
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  Speaker 2: consumer spending that's driving it. It's corporate industrial spending that's
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  Speaker 2: driving it. Right, It's it's it's the AI trade that
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  Speaker 2: was the dominant one, and that's reflected in the earnings growth.
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  Speaker 2: So the question for this year is going to be, Hey,
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  Speaker 2: where where do you think you know the earnings growth
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  Speaker 2: is going to be. We're seeing upward revisions to S
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  Speaker 2: and P five hundred earnings estimates right now, largely because
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  Speaker 2: energy earnings growth is surprise expected to be very high now,
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  Speaker 2: whereas before the Iran conflicts started it was not. It's
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  Speaker 2: unclear to me that the disruptions from the Iran conflict
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  Speaker 2: are being appropriately priced into other sectors right now, and
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  Speaker 2: so I think that's something to watch because what we've
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  Speaker 2: seen to this point is effectively a month ago you
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  Speaker 2: saw earnings projections for the year coming in again like
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  Speaker 2: this is all from factset data, so they aggregate all
• 8:03
  Speaker 2: these earnings estimates, and that's what I'm using here. If
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  Speaker 2: you go back to March sixth, earnings growth estimates for
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  Speaker 2: the year, we're fifteen percent. They're now up to seventeen
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  Speaker 2: point one. That's mostly almost exclusively because of upward revisions
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  Speaker 2: to projections for the energy sector. We'll see if there's
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  Speaker 2: downward ones that come through anywhere else, we'll just have
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  Speaker 2: to watch. Just take a quick break now, when we
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  Speaker 2: come back, we'll pull back from this long view of things. Instead,
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  Speaker 2: we'll talk a little bit about what's going on now
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  Speaker 2: in the Middle East and whether a ceasefire can make
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  Speaker 2: a difference in the American economy from here on out.
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  Speaker 3: All right, Mike, I want to talk a little bit about.
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  Speaker 2: Kind of where we are right now from a ceasefire perspective,
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  Speaker 2: and dovetailed into this piece what a lasting ceasefire would
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  Speaker 2: do for the American economy.
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  Speaker 3: So I thought a lot.
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  Speaker 2: About this over the course of yesterday, as you would expect,
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  Speaker 2: because it's kind of a big deal. And here's where
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  Speaker 2: I landed, is ultimately a ceasefire that ends up lasting
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  Speaker 2: is something that has the potential to provide relief for
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  Speaker 2: Americans as far as some of the prices they've already
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  Speaker 2: seen go up as far and beyond that, some of
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  Speaker 2: the prices that have yet gone up that are likely
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  Speaker 2: to in the coming weeks and months because of you
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  Speaker 2: know just how long supply chains take to get everything
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  Speaker 2: into the system.
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  Speaker 3: But we've got this air pocket that's just sitting there.
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  Speaker 2: In the like the flow of oil globally, and what
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  Speaker 2: I mean by this is right now, and this is
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  Speaker 2: before you even get to ships coming in and out
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  Speaker 2: of four moves, you've got twelve and a half million
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  Speaker 2: barrels of production per day offline in the Middle East, Okay,
• 10:30
  Speaker 2: because they don't have anywhere to put the stuff. There's
• 10:33
  Speaker 2: there's nowhere to put it, so they have to plug
• 10:35
  Speaker 2: the wells. And so every day we're adding another twelve
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  Speaker 2: and a half million barrels a day, which I did
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  Speaker 2: the math. I did the math, and what you get
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  Speaker 2: is over the course of April, that equates to three
• 10:47
  Speaker 2: hundred and seventy five million barrels plus the three hundred
• 10:49
  Speaker 2: million that was shut in in March because it ramped
• 10:51
  Speaker 2: up over time, and so by the end of April
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  Speaker 2: you're talking around seven hundred million barrels as a gap
• 10:58
  Speaker 2: beyond that, And this is data from Rory Johnston, who's
• 11:02
  Speaker 2: an energy analyst it takes a couple months in order
• 11:06
  Speaker 2: to actually get wells that are plugged back to full
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  Speaker 2: production capacity.
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  Speaker 3: So where you end up with is the best case.
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  Speaker 2: Scenario at this point, in my opinion, is somewhere around May.
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  Speaker 2: First you get those wells unpugged in producing again. And
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  Speaker 2: even if that happens, you're talking about one point one
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  Speaker 2: billion barrels of oil that's not produced this year.
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  Speaker 4: Okay, So that's our estimate on the supply side. Shift
• 11:34
  Speaker 4: over to demand side.
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  Speaker 2: The demand side hasn't been particularly impacted yet because generally
• 11:41
  Speaker 2: people have to get where they're going, and so unless
• 11:44
  Speaker 2: there is an absolute shortage, people say, okay, I have
• 11:49
  Speaker 2: to pay up for this. The estimates that we've seen
• 11:52
  Speaker 2: are that what we call demand destruction, basically people saying no,
• 11:55
  Speaker 2: I'm not gonna pay that anymore. Doesn't start until gas
• 11:59
  Speaker 2: gets into the fire. Five dollars a gallon range in
• 12:01
  Speaker 2: the United States are now parts of it. It's already there, California,
• 12:05
  Speaker 2: you can look at it here again. The TRIPA national
• 12:08
  Speaker 2: average right now moved up overnight to four sixteen and
• 12:11
  Speaker 2: six tents.
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  Speaker 3: California's at five ninety three. Yeah.
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  Speaker 2: Okay, So like California is feeling it already right now.
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  Speaker 2: A month ago, California was at four ninety three, So
• 12:20
  Speaker 2: you know you've seen a big move up. Diesel continues
• 12:22
  Speaker 2: to move up or within sniffing distance of all time highs.
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  Speaker 4: I'll make a case that's difficult to measure, but I'll
• 12:28
  Speaker 4: make a case that two to three year global demand
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  Speaker 4: for oil looks higher now than it otherwise would have
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  Speaker 4: been due to sprs and just general security concerns about
• 12:39
  Speaker 4: the Middle East.
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  Speaker 3: I would agree.
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  Speaker 2: So here's the thing, like when I look at what
• 12:44
  Speaker 2: a lasting ceasefire would do. The reason why you're not
• 12:47
  Speaker 2: seeing any improvement in oil right now, and why it's
• 12:51
  Speaker 2: actually rallied about ten percent off its low from yesterday
• 12:57
  Speaker 2: is because, again, the initial reaction for markets is great.
• 13:01
  Speaker 2: This is gonna get the oil flowing again. The problem
• 13:04
  Speaker 2: is if you are a company that owns a tanker ship.
• 13:09
  Speaker 2: Tankerships cost anywhere from the big ones cost anywhere from
• 13:12
  Speaker 2: like one hundred to two hundred million dollars to operate
• 13:16
  Speaker 2: in this environment right now, which is a crazy environment. UH,
• 13:20
  Speaker 2: tankers are getting anywhere from like two hundred to four
• 13:23
  Speaker 2: hundred thousand dollars a day in order to operate. Let's
• 13:26
  Speaker 2: take the midpoint of that and call it three hundred thousand.
• 13:29
  Speaker 2: If you can run that tanker ship. Again, you're not
• 13:31
  Speaker 2: gonna run it every day for a full year, but
• 13:33
  Speaker 2: let's just say it's hey, working days, just like you
• 13:35
  Speaker 2: and I go to work five days a week, Let's
• 13:36
  Speaker 2: say it's two hundred and fifty working days a year.
• 13:39
  Speaker 2: You're talking about seventy five million dollars a year that
• 13:42
  Speaker 2: you can make running that tanker ship at this point.
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  Speaker 3: And again, that's one year. That's not even extending it out.
• 13:50
  Speaker 3: The companies that.
• 13:50
  Speaker 2: Are looking at this and people say, well, like they
• 13:52
  Speaker 2: can get insurance and this and that. Okay, great, the
• 13:54
  Speaker 2: insurance will cover the cost of the ship, but it's
• 13:57
  Speaker 2: not gonna make up for the lost revenue.
• 13:59
  Speaker 3: While they all are you know, if.
• 14:01
  Speaker 2: The ship is at the bottom of the Persian Gulf,
• 14:03
  Speaker 2: if it gets sunk because the ceasefire breaks now and
• 14:06
  Speaker 2: I'm gonna say not saying it will or won't, but
• 14:08
  Speaker 2: if you're if you own one of these ships, the
• 14:10
  Speaker 2: calculus that they are making, and this is again what
• 14:13
  Speaker 2: I've heard anecdotally from people in the region is hey,
• 14:17
  Speaker 2: we're just gonna wait, because right now we can either
• 14:21
  Speaker 2: go pick up a load somewhere else and get paid
• 14:23
  Speaker 2: really well, or we can sit here and wait for
• 14:25
  Speaker 2: a little bit to have a little more clarity. And
• 14:27
  Speaker 2: so the last thing you want to do is start
• 14:29
  Speaker 2: moving into Hormoz, have the ceasfire breakdown, and now you've
• 14:32
  Speaker 2: got another tanker stuck in there that you can't make
• 14:34
  Speaker 2: any money with.
• 14:35
  Speaker 4: So Bloomberg is citing that as of Wednesday, some seven ships,
• 14:40
  Speaker 4: all with previous ties to Iran, we're able to navigate
• 14:43
  Speaker 4: through the strait and into Thursday morning. As we've talked about,
• 14:47
  Speaker 4: normal transits in both directions are what one hundred and
• 14:50
  Speaker 4: thirty to one hundred and sixty per day generally speaking.
• 14:53
  Speaker 4: So obviously we keep coming back to that same narrative
• 14:57
  Speaker 4: of what matters here is not words, it is actions,
• 15:01
  Speaker 4: and the most important action is ships navigating the Strait.
• 15:05
  Speaker 4: That's not to say that yesterday's rally was equity market
• 15:09
  Speaker 4: rally was illogical. I think what happened yesterday in equity
• 15:13
  Speaker 4: markets was a clear worst case scenario temporarily taken off
• 15:17
  Speaker 4: the table. Right The worst case scenario was a dramatic
• 15:21
  Speaker 4: re escalation of attacks on infrastructure in the region, and
• 15:26
  Speaker 4: at least for now, that scenario was taken off the table,
• 15:30
  Speaker 4: and so I think equity markets responded. We'll see if
• 15:32
  Speaker 4: they responded too dramatically. But I think all of this
• 15:36
  Speaker 4: is logical. And now with oil prices back to where
• 15:39
  Speaker 4: they were about a week ago or a little bit
• 15:41
  Speaker 4: more than a week ago, that's also pretty logical. Hey,
• 15:45
  Speaker 4: we're not going to start bidding down oil prices until
• 15:47
  Speaker 4: we actually see ships safely navigating.
• 15:50
  Speaker 2: So markets are trying to look through this and say, okay,
• 15:53
  Speaker 2: here's how we see a positive outcome occurring. But oil
• 15:57
  Speaker 2: markets are Remember there's a difference between markets of physical
• 16:02
  Speaker 2: commodities and markets of financial instruments.
• 16:06
  Speaker 5: You don't have to take delivery of your Amazon shares, correct.
• 16:09
  Speaker 2: At some point, there's an airline in Europe that needs
• 16:13
  Speaker 2: jet fuel. At some point there is a shipper in
• 16:18
  Speaker 2: Vietnam that needs bunker fuel. And this is why you
• 16:22
  Speaker 2: are seeing, you know, look at Brent crude again. The
• 16:25
  Speaker 2: West Text intermediate's moving more dramatically today, but I don't
• 16:28
  Speaker 2: think that's the signal. Brent crude got down to ninety
• 16:32
  Speaker 2: a barrel yesterday, it's back up to ninety eight. It's
• 16:35
  Speaker 2: an eight percent rally, almost a ten percent rally in
• 16:38
  Speaker 2: a day. This is something like it's telling you something
• 16:43
  Speaker 2: about the potential concerns in the short term. Because remember
• 16:45
  Speaker 2: when we talk about the price of Brent, what we're
• 16:48
  Speaker 2: looking at right now is the June futures contract. That's
• 16:51
  Speaker 2: what's the one that cited. It's called the front month contract.
• 16:54
  Speaker 2: Is it's the first month of the futures market. The
• 16:58
  Speaker 2: longer term markets, okay, are not pricing back to there yet,
• 17:02
  Speaker 2: but they never got up as high as that. Anyways,
• 17:04
  Speaker 2: if you look at the December Brent future where you
• 17:07
  Speaker 2: ended up, its peak was on March thirty first, actually
• 17:11
  Speaker 2: at around eighty eight eighty nine dollars. It is spent
• 17:15
  Speaker 2: the last week basically hanging out right around eighty Again,
• 17:18
  Speaker 2: this is not a prediction for where the market will be.
• 17:22
  Speaker 2: This is what you want to pay now or what
• 17:24
  Speaker 2: you can pay now if you need to take delivery
• 17:27
  Speaker 2: in December. So basically where the market is going in
• 17:33
  Speaker 2: my opinion on this is crude price Like we're gonna
• 17:37
  Speaker 2: wake up very quickly and realize, hey, if you don't
• 17:40
  Speaker 2: get oil out of Hormuz in the next two weeks,
• 17:44
  Speaker 2: it will not be able to make June delivery for
• 17:47
  Speaker 2: Brent crude. It takes thirty to forty days to make
• 17:50
  Speaker 2: that trip. And so this is the reality that we're
• 17:54
  Speaker 2: waking up to here in addition to the barrels lost,
• 17:57
  Speaker 2: which is, hey, there still is a real energy crisis
• 18:01
  Speaker 2: that is hitting. We don't feel it here in the
• 18:04
  Speaker 2: United States because of where we get our oil from. Predominantly,
• 18:08
  Speaker 2: it is already hit in Africa, it is already hit
• 18:11
  Speaker 2: in Asia, and it is hitting in Europe over the
• 18:13
  Speaker 2: next seven days here, and it's unavoidable at this point,
• 18:18
  Speaker 2: there's an air pocket because that oil has simply not
• 18:21
  Speaker 2: been produced.
• 18:22
  Speaker 3: We've now worked.
• 18:23
  Speaker 2: Through basically all of the floating storage that's out there,
• 18:27
  Speaker 2: floating storage being tankers that are in root and stuff
• 18:30
  Speaker 2: aside like excess ones, and now you're starting to see
• 18:33
  Speaker 2: the on land inventories being worked through throughout Asia and Europe.
• 18:38
  Speaker 2: And so this is where we're still heading is for
• 18:41
  Speaker 2: some real problems that are going to become a parent there.
• 18:46
  Speaker 2: It's just a question of, hey, can you get a
• 18:47
  Speaker 2: lasting ceasefire that makes those problems a one to two
• 18:52
  Speaker 2: month air bubble in oil markets, or do things you know,
• 18:56
  Speaker 2: struggle to get across the finish line, and this turns
• 18:59
  Speaker 2: into the a quarter long or two quarter long bubble,
• 19:03
  Speaker 2: and then you've got some real problems because the world
• 19:05
  Speaker 2: simply cannot operate on ten percent less oil let alone.
• 19:09
  Speaker 2: We're not even mentioning than at gas and the aluminum
• 19:12
  Speaker 2: and the fertilizer and all this stuff. We're just talking
• 19:14
  Speaker 2: oil here. There are problems when you if this is extended.
• 19:18
  Speaker 2: So what a lasting ceasefire would do for the American economy.
• 19:22
  Speaker 2: It would make this a short term, more severe problem.
• 19:26
  Speaker 2: Long term you know more, you know minimum one.
• 19:29
  Speaker 3: But if it.
• 19:30
  Speaker 2: Doesn't happen, then you still are right back in the
• 19:31
  Speaker 2: position we were in a week ago. Quick break here
• 19:34
  Speaker 2: when we come back, We've got Wall Street Watch next.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:44
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:49
  Speaker 1: on the Financial Exchange Radio Network till now full wool
• 19:54
  Speaker 1: Street Watch treking the stocks, theodato and the headlines driving
• 19:57
  Speaker 1: markets so far today right here on the Financial Exchange
• 20:01
  Speaker 1: Radio Network.
• 20:02
  Speaker 6: Well after yesterday's strong rally, Marcus today are modestly pulling back,
• 20:06
  Speaker 6: with oil jumping higher after Iran accused the US of
• 20:10
  Speaker 6: breaching their ceasefire agreements. Investors are also bracing for tomorrow's
• 20:14
  Speaker 6: consumer Price Index for the month of March. Right now,
• 20:18
  Speaker 6: the Dow is down about a third of a percent,
• 20:21
  Speaker 6: SMP five hundred down just over a quarter percent lower,
• 20:24
  Speaker 6: Nasdaq down by over four tenths of a percent to
• 20:27
  Speaker 6: one hundred and one points, Russell two thousand down about
• 20:31
  Speaker 6: four tenths of a percent as well. Tenure Treasure reeled
• 20:34
  Speaker 6: up two basis points at four point three one three percent,
• 20:37
  Speaker 6: and Oil jumping seven percent higher, now trading at one
• 20:41
  Speaker 6: hundred and one dollars a barrel. Shares an AI computing
• 20:45
  Speaker 6: company Core we falling four percent after the company announced
• 20:49
  Speaker 6: a twenty one billion dollar expanded infrastructure deal with Meta.
• 20:53
  Speaker 6: MetaStock is climbing by two percent. Meanwhile, The Wall Street
• 20:57
  Speaker 6: Journal reported that Disney is planning to eliminate as many
• 21:00
  Speaker 6: as one thousand positions in the coming weeks in one
• 21:04
  Speaker 6: of the first significant moves under new CEO, Josh Deamero.
• 21:08
  Speaker 6: Disney shares off by about one percent, and shares in
• 21:14
  Speaker 6: Modello and Corona beer maker Constellation Brands are rising five
• 21:18
  Speaker 6: percent despite the company withdrawing its guidance due to uncertainty
• 21:21
  Speaker 6: and reported subdued demand. Constellation brands also logged lower revenue
• 21:27
  Speaker 6: in the previous quarter as demand for its alcohol remained weak.
• 21:33
  Speaker 6: I'm Tucker Silva and that is Wall Street Watch.
• 21:37
  Speaker 3: Final piece, just wrapping up ceasefire talk for the day.
• 21:40
  Speaker 3: Look at it. Through this whole thing.
• 21:42
  Speaker 2: I've said, I have no idea exactly how negotiations or
• 21:46
  Speaker 2: anything are going to go, and I maintain that what
• 21:48
  Speaker 2: I will say the next few days is pretty critical
• 21:51
  Speaker 2: in terms of, hey, can this ceasefire hold? Can you
• 21:56
  Speaker 2: start to see some progress that is being made? And specifically, then,
• 22:03
  Speaker 2: like when we talk about progress being made, is there
• 22:05
  Speaker 2: a meaningful flow that starts to resume through horror moves
• 22:10
  Speaker 2: that allows for that shut in oil production to start
• 22:14
  Speaker 2: coming back online towards the end of April. So this,
• 22:19
  Speaker 2: in my opinion, like through this weekend, in this first
• 22:21
  Speaker 2: round of in person negotiations again it's it's kind of okay,
• 22:25
  Speaker 2: I don't know how they're going to go. I'm not
• 22:27
  Speaker 2: going to try to, you know, pretend that I know
• 22:28
  Speaker 2: what each side is doing exactly, because I don't, like
• 22:32
  Speaker 2: that's just not something where anyone has any edge. But rather, okay,
• 22:37
  Speaker 2: coming out of this weekend, do we start to see
• 22:40
  Speaker 2: improvements in transits or is it more of the same.
• 22:44
  Speaker 2: That's the big thing. I think, Yeah, that's all I've
• 22:47
  Speaker 2: got there. We got FED minutes yesterday, Mike, anything interesting
• 22:50
  Speaker 2: from the March seventeenth, eighteenth meeting notes.
• 22:56
  Speaker 4: Look, I think the most compelling thing you can say
• 22:58
  Speaker 4: is the same stuff that we heard about from those
• 23:01
  Speaker 4: FED officials, which is they're really unsure which of their
• 23:06
  Speaker 4: dual mandates they should be most concerned about at the moment,
• 23:09
  Speaker 4: and they feel as though they can't really do anything
• 23:13
  Speaker 4: so long as there's a war in the Middle East.
• 23:16
  Speaker 4: Was there anything more compelling than that to you? I mean,
• 23:18
  Speaker 4: they seem stuck in this. Hey, there's risks to the
• 23:22
  Speaker 4: upside of both of our mandates, the unemployment rate as
• 23:25
  Speaker 4: well as the inflation rate. We were seeing signs of
• 23:29
  Speaker 4: higher than higher inflation that we were comfortable with before
• 23:32
  Speaker 4: the war broke out, and obviously that risk stays high.
• 23:36
  Speaker 4: But hiring's been so weak that we have to be
• 23:38
  Speaker 4: aware of that one too.
• 23:40
  Speaker 2: So yes, and I think that that's probably the appropriate
• 23:43
  Speaker 2: place that they were at that particular point in time.
• 23:47
  Speaker 2: I think it's also why they probably end up doing
• 23:49
  Speaker 2: nothing at the April meeting. In three weeks. It's April
• 23:51
  Speaker 2: twenty ninth is the next FED meeting, and I don't
• 23:54
  Speaker 2: think there's anything that's changed in either direction where they
• 23:57
  Speaker 2: can say, yep, let's start cutting rates or we need
• 24:00
  Speaker 2: to hike I do think that by the time we
• 24:05
  Speaker 2: get to their June meeting, which is on June seventeenth,
• 24:11
  Speaker 2: here's the data that they're gonna have in hand at
• 24:13
  Speaker 2: that point that they don't today. They're gonna have two
• 24:15
  Speaker 2: more jobs reports for April and May. They are going
• 24:19
  Speaker 2: to have three more cpis March, April, and May, and
• 24:24
  Speaker 2: they're gonna have a pretty good idea as to what
• 24:27
  Speaker 2: has actually been going on with you know, general commodity
• 24:30
  Speaker 2: markets and supply chains and everything over the course of
• 24:33
  Speaker 2: this year.
• 24:33
  Speaker 3: Yep, that is the meeting where it's.
• 24:36
  Speaker 2: Going to, in my opinion, be either And what's interesting
• 24:41
  Speaker 2: is basically nothing's being priced in here right now. It's
• 24:43
  Speaker 2: I've never seen this, where the next I won't say
• 24:48
  Speaker 2: I've never seen this, but it's been unusual to see
• 24:50
  Speaker 2: in the last five years. The next three meetings there
• 24:54
  Speaker 2: is nothing priced in. It's a ninety eight point four
• 24:57
  Speaker 2: percent chance that rates are kept where they we are
• 25:00
  Speaker 2: through the July meeting. In my opinion, though, that June
• 25:04
  Speaker 2: meeting is underpriced in either direction, because it's either going
• 25:09
  Speaker 2: to be Hey, there's a real inflationary problem that is
• 25:14
  Speaker 2: developing and we need to deal with it because the
• 25:16
  Speaker 2: labor market hasn't broken down and you've got higher costs
• 25:20
  Speaker 2: that are being passed through, or it's going to be
• 25:24
  Speaker 2: the higher cost structure is eating into other demand and
• 25:27
  Speaker 2: is killing the labor market and we need to start cutting.
• 25:30
  Speaker 4: I'm a little bit surprised that when we look at
• 25:33
  Speaker 4: the year end forecast four rates from CME, the probability
• 25:39
  Speaker 4: hasn't really changed much over the last week. You have
• 25:41
  Speaker 4: a slightly higher likelihood of a rate cut by year end,
• 25:45
  Speaker 4: but only by like three percentage points. So I found
• 25:48
  Speaker 4: that piece to be interesting too, that since this cease fire,
• 25:52
  Speaker 4: nobody's really changing their expectations for what the Fed's going
• 25:56
  Speaker 4: to do.
• 25:57
  Speaker 5: Interestingly, also, we.
• 25:59
  Speaker 4: I would still be surprised, but I think there's an
• 26:03
  Speaker 4: interesting possibility that Jay Powell is still leading that June
• 26:06
  Speaker 4: seventeenth meeting at this stage also possible.
• 26:10
  Speaker 2: I want to use this as a jumping off point
• 26:12
  Speaker 2: for talking about the labor market, because here's the thing.
• 26:18
  Speaker 2: At the beginning of the year, if you were to
• 26:20
  Speaker 2: go back and listen to like our January second show
• 26:22
  Speaker 2: or whatever, you would have heard me saying, hey, right now,
• 26:26
  Speaker 2: the labor market is the bigger concern for me compared
• 26:29
  Speaker 2: to inflation. Like I was saying, yep, there, you could
• 26:33
  Speaker 2: fully justify additional cuts if you want. In the last
• 26:36
  Speaker 2: three months, that has completely changed in my opinion. And
• 26:41
  Speaker 2: it's because if you look at a number of data sets, remember,
• 26:45
  Speaker 2: don't look at just one because one's gonna give you nothing.
• 26:48
  Speaker 2: The headline jobs numbers, Jay Powells told you to stop
• 26:51
  Speaker 2: paying attention to them. It doesn't matter how many jobs
• 26:52
  Speaker 2: are created each month because the labor supply is seeing
• 26:56
  Speaker 2: less growth than it ever has in the United States. Yep,
• 26:59
  Speaker 2: focus on unemployment rate which is flat over the last
• 27:01
  Speaker 2: six months. Okay, if the unemployment rate is flat the
• 27:04
  Speaker 2: last six months, why am I cutting rates?
• 27:09
  Speaker 3: Beyond that?
• 27:10
  Speaker 2: If you take a look at what we are seeing
• 27:14
  Speaker 2: as far as payroll tax withholding growth, it's back to
• 27:17
  Speaker 2: a pretty respectable four to five percent range. Not great,
• 27:20
  Speaker 2: not horrible, but fine. There's nothing concerning there in the
• 27:23
  Speaker 2: last three months after a downward trend for the last
• 27:25
  Speaker 2: six months of last year.
• 27:27
  Speaker 3: So that's good.
• 27:28
  Speaker 2: Job openings are flat for the last six months. They're
• 27:31
  Speaker 2: not getting better, they're not getting worse, they're just sitting there.
• 27:34
  Speaker 2: Continuing unemployment claims are now running not just below twenty
• 27:38
  Speaker 2: twenty five levels, they're running below twenty twenty four levels.
• 27:44
  Speaker 2: Like we're talking continuing job Those claims are five percent
• 27:47
  Speaker 2: under last year's levels.
• 27:49
  Speaker 3: Right now.
• 27:50
  Speaker 2: It's telling you that the labor market, despite the slow hiring,
• 27:55
  Speaker 2: is really tight because there's no one too higher. The
• 27:58
  Speaker 2: baby boomers are retiring, and immigration is either flat or negative.
• 28:03
  Speaker 2: Companies don't have anyone to hire. And so I think
• 28:08
  Speaker 2: that the place that I land in then is over
• 28:13
  Speaker 2: the next three months or so. I am far more
• 28:18
  Speaker 2: concerned about the potential for inflation to become a more
• 28:23
  Speaker 2: entrenched problem if we don't get a positive resolution on
• 28:28
  Speaker 2: this ceasefire over the next couple of weeks. Positive meaning
• 28:32
  Speaker 2: not like some kind of defined, like you know, signed,
• 28:37
  Speaker 2: you know, fully formed agreement.
• 28:38
  Speaker 3: I don't think you're getting that that quickly.
• 28:40
  Speaker 2: It's going to take a while, but some interim step
• 28:43
  Speaker 2: beyond where we are that allows.
• 28:44
  Speaker 3: For ships to at least flow through hormones.
• 28:47
  Speaker 2: If you don't get that by the end of April,
• 28:50
  Speaker 2: you've got some real problems. I mean, I put down
• 28:53
  Speaker 2: that Synco DeMaio marker at the beginning of this. If
• 28:58
  Speaker 2: you're there and you don't have have ships flowing through
• 29:01
  Speaker 2: hormos yet, it's it's very quite bad, is the technical term.
• 29:06
  Speaker 2: So we'll see what happens there. But yeah, the labor market,
• 29:11
  Speaker 2: gotta tell you, I know that hiring slow, and I'm
• 29:13
  Speaker 2: sure there's people out there that are, like, Chuck, you
• 29:15
  Speaker 2: don't know what you're talking about, Like my nephew can't
• 29:18
  Speaker 2: get hired, or I can't get hired or this, and
• 29:19
  Speaker 2: like I get it. But the actual like what we're
• 29:25
  Speaker 2: seeing as far as continuing, like all the data I cited,
• 29:29
  Speaker 2: there's no further deterioration. It's actually showing a tighter labor
• 29:32
  Speaker 2: market than a year ago in some respects. So that's
• 29:37
  Speaker 2: what we've got here with the FED. Let's take a
• 29:40
  Speaker 2: quick break here when we come back more on anthropics
• 29:43
  Speaker 2: new model that they put out or not put out,
• 29:47
  Speaker 2: but discussed on Tuesday. They're not putting it out because
• 29:50
  Speaker 2: it's too powerful for all of us to use. Is
• 29:53
  Speaker 2: that just marketing or is there a real thing here?
• 29:57
  Speaker 2: We'll discuss when we come back.
• 29:59
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• 30:03
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• 30:07
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• 30:10
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• 31:10
  Speaker 2: Yesterday we talked briefly about Anthropics new large language model
• 31:18
  Speaker 2: dubbed MYTHOS, and basically what they said in a post
• 31:24
  Speaker 2: on their website was, in a matter of days, the
• 31:29
  Speaker 2: use of this for cybersecurity purposes found thousands of vulnerabilities
• 31:34
  Speaker 2: across major platforms, to the point where they pretty much said,
• 31:38
  Speaker 2: we're not releasing this to the public until we release
• 31:42
  Speaker 2: it to a small consortium of tech companies first so
• 31:45
  Speaker 2: they can patch their software to the point where we
• 31:49
  Speaker 2: don't think it's a major threat releasing this to everyone.
• 31:52
  Speaker 5: So marketing or reality my answers both.
• 31:56
  Speaker 2: Yes, it very much is something where I've talked to
• 31:59
  Speaker 2: people in like the cybersecurity business and they've basically been like, yeah,
• 32:06
  Speaker 2: this is a legit problem based on like what they've
• 32:09
  Speaker 2: seen from Anthropic on this. They're like, they're like, they're
• 32:13
  Speaker 2: not buessing about this. It's it's a real thing. But
• 32:16
  Speaker 2: it's also you know, really good marketing. Hey, we've we've
• 32:19
  Speaker 2: got the AI so powerful that we can't release it
• 32:21
  Speaker 2: to you yet.
• 32:22
  Speaker 3: Were sounds good.
• 32:24
  Speaker 4: So dangerous that we are going to tell you that
• 32:27
  Speaker 4: it exists but not release it because we frankly might
• 32:30
  Speaker 4: get sued by a bunch of companies that get hacked
• 32:32
  Speaker 4: because of it.
• 32:33
  Speaker 3: Now I'm sorry.
• 32:34
  Speaker 2: Now, now this has also gotten me to another point
• 32:38
  Speaker 2: in my AI evolution. I've again, I try to with anything,
• 32:42
  Speaker 2: you try to say, Okay, here's where I am, and
• 32:44
  Speaker 2: let's evolve from there. Because everything changes, nothing stays the same.
• 32:48
  Speaker 2: So my original thing was, Okay, like AI's fun and
• 32:51
  Speaker 2: it makes dumb mistakes, but I'm I'm just not sure
• 32:53
  Speaker 2: there's enough meat there. Around three or four months ago,
• 32:56
  Speaker 2: as we got into the stuff with claud code, I
• 33:00
  Speaker 2: started to look at it and say, okay, like there's
• 33:02
  Speaker 2: actually some meat there if you use AI to build
• 33:07
  Speaker 2: things that can help you to do what you need
• 33:10
  Speaker 2: to do instead of just asking it dumb questions or whatever.
• 33:14
  Speaker 2: And so I said, Okay, this is gonna be something
• 33:15
  Speaker 2: that's worthwhile to try to like learn how to do.
• 33:19
  Speaker 2: I've now done. It's it's not a one to eighty again,
• 33:22
  Speaker 2: it's it's it's different. I've now gotten to the point where,
• 33:25
  Speaker 2: for basically ninety nine point nine percent of humans, I
• 33:30
  Speaker 2: don't think there's any point in trying to learn those
• 33:35
  Speaker 2: more advanced uses of AI, because quite honestly, the technology
• 33:40
  Speaker 2: is evolving so rapidly that what was cutting edge three
• 33:44
  Speaker 2: months ago is now already stale, and you are not
• 33:48
  Speaker 2: going to be able to keep up with the people
• 33:51
  Speaker 2: that live and breathe this every single day. And so
• 33:54
  Speaker 2: I've kind of gotten to let's just let the geniuses
• 34:00
  Speaker 2: build how they are going to build, and then if
• 34:02
  Speaker 2: they build really cool stuff over the next couple of years,
• 34:06
  Speaker 2: we can use what they built.
• 34:07
  Speaker 3: Because it's probably gonna be better than anything I could build. Anyways.
• 34:10
  Speaker 5: Hmm.
• 34:12
  Speaker 2: It's kind of where I've gotten to just because things
• 34:15
  Speaker 2: are evolved. It's okay like have like a basic understanding
• 34:18
  Speaker 2: and use case because there's some places where you can
• 34:21
  Speaker 2: do some useful things, But as far as like really
• 34:24
  Speaker 2: powerful things or any business that's talking about using AI,
• 34:29
  Speaker 2: I just don't think you can keep up with how
• 34:31
  Speaker 2: fast it's evolving, quite honestly.
• 34:34
  Speaker 4: Yeah, the only part that I am humming about is, uh,
• 34:40
  Speaker 4: leave some pretty open doors for really bad stuff to
• 34:43
  Speaker 4: happen when nobody really understands what's happening. The example that
• 34:47
  Speaker 4: I'm thinking about most recently did not result in anything
• 34:50
  Speaker 4: really bad. But a few months ago we were talking
• 34:53
  Speaker 4: about the Reddit style social media platform for AI agents
• 34:56
  Speaker 4: to talk to each other, you know, things like that.
• 35:01
  Speaker 3: Oh, I'm not saying don't regulate the space.
• 35:03
  Speaker 4: I'm saying, well, I'm saying that even regularly, what regulators
• 35:05
  Speaker 4: are going going to understand what's happening in the space.
• 35:07
  Speaker 2: No, all I'm saying is the average person is not
• 35:10
  Speaker 2: going to be able to keep up with what are
• 35:12
  Speaker 2: new efforts in AI, and so anything that you're working
• 35:15
  Speaker 2: on is going to be out of date by the
• 35:17
  Speaker 2: time you finish it.
• 35:17
  Speaker 5: Yeah.
• 35:18
  Speaker 4: By the way, I just looked up I didn't know
• 35:19
  Speaker 4: this existed, But SMP Global has a cybersecurity index. I'm
• 35:24
  Speaker 4: trying to find the components of it. But the SMP
• 35:26
  Speaker 4: can show cybersecurity index and it is moving down about
• 35:29
  Speaker 4: three percent today.
• 35:30
  Speaker 2: Well, here's the other like logical extension there. Why would
• 35:35
  Speaker 2: you sign any new contracts with software companies right now
• 35:39
  Speaker 2: beyond what you are already running?
• 35:42
  Speaker 4: Yeah, I if I did, it would be a very
• 35:44
  Speaker 4: short term contract and it better be really easy to
• 35:47
  Speaker 4: implement in my in my company, the.
• 35:50
  Speaker 2: Term has to be short, the cost has to be
• 35:52
  Speaker 2: low because otherwise, like, how do you know that a
• 35:55
  Speaker 2: year from now what you've signed up for is not
• 35:57
  Speaker 2: out of date?
• 35:58
  Speaker 3: Right? And I think that's a very reasonable place to be.
• 36:04
  Speaker 3: So I've got that.
• 36:06
  Speaker 5: Yeah, yeah, it, like I said, good marketing.
• 36:10
  Speaker 4: But yeah, they've already seen a lot of cases where
• 36:14
  Speaker 4: these tools are being used to obviously build up very
• 36:19
  Speaker 4: more realistic phishing attempts and scam attempts. But on the
• 36:23
  Speaker 4: more sophisticated side of things, I believe it all exists
• 36:26
  Speaker 4: too where they are using these tools to detect potential
• 36:30
  Speaker 4: vulnerabilities in real big systems. And I will not be
• 36:35
  Speaker 4: surprised if aanthropic has something real here.
• 36:37
  Speaker 2: Speaking of vulnerabilities and big systems, Brockton Hospital is forced
• 36:41
  Speaker 2: yesterday to start using paper records because they had to
• 36:45
  Speaker 2: shut down their computer systems due to what they saw
• 36:50
  Speaker 2: as quote suspicious activity that began on Monday. We don't
• 36:54
  Speaker 2: really have further details beyond this. It's unclear, you know,
• 36:58
  Speaker 2: any of the specifics. But Brockton Hospital is now using
• 37:02
  Speaker 2: paper records to keep track of everything because something was
• 37:07
  Speaker 2: going on in their computer systems that they didn't like.
• 37:11
  Speaker 4: Yeah, that happens almost every week in hospitals, right, Yes, yes,
• 37:15
  Speaker 4: it is nothing new. Hopefully the staff and doctors there
• 37:19
  Speaker 4: are pretty familiar with it, because there seems to be
• 37:22
  Speaker 4: across the country, one hospital a week that is dealing
• 37:24
  Speaker 4: with similar types of issues of records being taken down,
• 37:29
  Speaker 4: denial of service, tax on records and.
• 37:33
  Speaker 5: Only likely to get worse over time.
• 37:35
  Speaker 2: Would be my guess, has to be one of the
• 37:37
  Speaker 2: hardest types of systems to secure because of the combination
• 37:41
  Speaker 2: of sheer number of people that are in them, the
• 37:46
  Speaker 2: amount of information flowing back and forth, and the speed
• 37:50
  Speaker 2: at which you often have to enter things because doctors,
• 37:53
  Speaker 2: as you know, are just incredibly busy and you know,
• 37:56
  Speaker 2: might end up clicking the wrong thing and end up
• 37:59
  Speaker 2: you know, cooking the link and this and that, like
• 38:00
  Speaker 2: it's again. You can see easily how these systems become compromised.
• 38:06
  Speaker 2: Let's take a quick break, but we got our two
• 38:08
  Speaker 2: coming up in just a little bits on the financial exchange,